World Business

BOJ aims to bolster economic recovery

By Mayumi Otsuma (China Daily)
Updated: 2010-06-16 09:16

Bank of Japan chief Masaaki Shirakawa instructed his staff to work on the credit plan in April. Tomohiro Ohsumi/Bloomberg

TOKYO - The Bank of Japan (BOJ) will offer as much as 3 trillion yen ($33 billion) in loans to companies for as long as four years in an effort to strengthen the economic recovery.

The loans will be channeled through banks, and the central bank will accept requests from lenders through March 2012, it said in a statement released on Tuesday in Tokyo. Credit will be extended at the benchmark interest rate, which the board unanimously voted on Tuesday to keep unchanged at 0.1 percent.

The plan is too small to lower borrowing costs and is unlikely to spur the economy or satisfy politicians, said economist Hirokata Kusaba.

The program is the same size as last month's auction of two-month government bills, and less than the capital raising mounted by Japan's top three banks in the past 18 months.

"The new program is unlikely to make any contribution to growth in Japan," said Kusaba, a senior economist at Mizuho Research Institute Ltd in Tokyo. "The new administration won't relent from pressure on the central bank to do more as it strives to restore the soundness of public finances without jeopardizing growth."

The Nikkei 225 Stock Average closed 0.1 percent higher, the fourth straight gain, after earlier dropping as much as 0.5 percent. The yen traded at 91.31 per dollar from 91.52 before the announcement. The yield on Japan's benchmark 10-year bond fell half a basis point to 1.225 percent.

"The most critical challenge the Japanese economy is currently facing is to raise the potential economic growth rate and productivity," the bank said. The measure "aims to act as a catalyst for financial institutions in making efforts toward strengthening the foundations of economic growth."

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The BOJ said it will target 18 growth areas including the environment, health and tourism while ensuring that it "does not directly involve itself in the allocation of funds to individual firms and industries." It will also avoid hampering interest-rate policy and money-market operations, it said.

Governor Masaaki Shirakawa instructed his staff to work on the credit plan in April, after previous efforts failed to stem the deflation that has discouraged spending and squeezed profits.

Pressure on Shirakawa to do more may mount in coming months as newly appointed Prime Minister Naoto Kan, who as deputy repeatedly urged further BOJ steps, unveils plans to contain the world's largest debt.

Vice-Finance Minister Motohisa Ikeda told reporters after attending the meeting that the lending program is "appropriate" and consistent with the government's growth strategy. Kan is expected to unveil midterm growth and fiscal plans before a summit of Group of 20 leaders this month.

On Monday, Kan said in parliament that the government and the central bank will work together to stamp out deflation. After being sworn in as leader last week, he said his administration must focus on curbing government debt, warning the Japan could "go bankrupt" if remedies aren't taken.

Bloomberg News